Buy These Free-Range Bond Funds
Kiplinger's Personal Finance|March 2019

Last month I promised to discuss bond funds whose managers aren’t hemmed in by allegiance to an index or the ultraconservative viewpoint that Treasury bonds and notes are the center of the universe.

Jeffrey R. Kosnett
Buy These Free-Range Bond Funds

As I wrote, I dislike such stolid holdings as total bond market exchange-traded funds and funds designed to replicate the Bloomberg Barclays Aggregate Bond index—which is 42% Treasuries and includes no municipals, high-yield bonds, bank loans or credit card receivables. To me, that approach treats debt instruments primarily as “stuff that isn’t stocks” rather than as a vibrant, investable universe of its own.

I grant that Vanguard Total Bond Market ETF (symbol BND) has a practically invisible 0.05% expense ratio and that during periods of unease about lesser-grade corporate bonds, tax-exempts or foreign I.O.U.s, it can beat many of its actively managed and more creative rivals. In the fourth quarter of 2018, BND returned 1.65%, while DODGE & COX INCOME

(DODIX, YIELD 3.36%) made just 0.27%. But over the years, Dodge & Cox’s broad reach and wise decision-making have given patient shareholders a huge advantage over the index trackers, even given its vast size. The firm has succeeded brilliantly with some of the largest mutual funds the world has ever seen.

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